How Do I Buy A Foreclosed Home At Auction
When a homeowner falls behind on his or her mortgage payments, eventually the lender files the 1st Legal Action, which is either a recorded document, or a court filing, depending on the state and assigns an attorney or trustee to conduct a foreclosure. At any time prior to the auction, the borrower can reinstate the loan by paying the arrearages, or the overdue amount, but unless the borrower sells his/her home, it is rare for the delinquency to be rectified.
how do i buy a foreclosed home at auction
Real estate foreclosures usually take several months from the first missed payment until the home is sold on the courthouse steps. The exact time depends on state law and the bank foreclosing. After the 2008 financial crisis, when banks were inundated with foreclosures, it could take well over a year. But nowadays, it is usually closer to six months.
In some states, banks are required to publish in a local paper the addresses of houses being foreclosed on (usually the cheapest paper to advertise in) for several consecutive weeks. You can find this paper and subscribe to it, but this is a rather antiquated way to go. My recommendation is either going down to the courthouse or accessing the records online. The address of the county courthouse and their website should be easy to find online with a simple Google search.
There are several major pitfalls that you must be aware of when deciding to buy a foreclosed home for real estate investing. The first thing to know is that not all liens get wiped out in a foreclosure auction. In particular, tax liens stay with the property. My business partners and I once purchased a property with a $7,000 tax lien attached to it, and guess what? We had to pay for it.
There are some auction companies, such as Auction.com, that have some financing options, but it will be tough to get financing from a bank for a foreclosure auction because of the very short turnaround period (and the fact the property may be in disrepair). If you intend to finance the home, you will probably need to use a private lender or simply bring your own funds.
Sometimes there are a few bullies at foreclosure auctions that like to throw their weight around and outbid new entries. But even with these types around, a few properties will slip the cracks and prove to be great deals.
It is also important to know whether you live in a judicial or non-judicial state, which you can check here. The key difference is that in judicial states, the person who is foreclosed on typically has a right of redemption, which could last as long as a year. This right also exists in some non-judicial states, so check applicable law or consult an attorney. During that time, the foreclosed individual can redeem the property by typically paying the foreclosure sales price as well as interest and allowable fees. This is very rare but could be a risk if you put a large amount of money into the rehab. It may be best to try to buy these redemption rights from the foreclosed party (typically, for a couple hundred dollars or so). Of course, it is always best not to invest any funds into the rehab until all redemption periods have expired and you have the foreclosure deed in hand.
Buying a foreclosed home can be a great way to invest in real estate, especially since there is substantially less competition than buying listed homes. That being said, there are also more risks involved. It is a good idea to speak to an attorney and research your local laws beforehand. To get a better feel for the process, go to a few auctions without the intent of making an offer and just watch and learn. But once you get the hang of it, foreclosure auctions can be a great avenue to find profitable house fix and flips or other real estate investment properties.
But there are other ways that homes are sold, and auctions are one of them. There are two main ways that a house ends up at auction: through foreclosure due to missed payments or defaulting on tax payments.
Foreclosed properties are sold at auction. These homes are seized by a mortgage lender after a borrower fails to make mortgage payments for a set period of time. This process begins after several months of missed payments. Before a servicer can proceed with the foreclosure process, the loan must be at least 120 days delinquent, with some exceptions. Servicers are required to make efforts to contact the borrower with alternatives to foreclosure to help them stay in their house if possible.
Absolute auctions attract the most bidders because there is no minimum. This is also the preferred method of most lenders and government agencies. All sales are final, meaning there is no room for the seller to back out in the face of a too-low bid.
In an open auction, bidders know the amount of any other bids that have been made. Bidders like open bids, because they can see what the competition is doing and raise their bid gradually, as needed. If there is no competition, a lowball bid might just win. On the other hand, open bidding can result in bidding wars, and sometimes sellers reap a windfall.
Why? Because in the auction process, the lender is looking to cut their losses by recouping the balance due on the mortgage and their costs to foreclose. The same is true for municipalities with a tax lien in place. Their interest is in coming as close as possible to having the tax bill paid and their costs recouped.
In the vast majority of real estate transactions, home buyers are legally offered consumer protections, lenders are required to make disclosures, and real estate agents must advise you as they would advise themselves. In the auction situation, none of that applies. In addition to having little or no access to the home you wish to buy before you bid, you are responsible for doing your due diligence to make sure the title is held free and clear.
Of course, the mortgage lender, and probably the taxing authority, have liens in place, but you have to make sure there are no other liens, as in the case of a home equity loan in default or unpaid homeowners association (HOA) fees. If there are, you will be responsible for paying those liens off when you acquire the title to the property.
Even if you win at auction, you can still lose the house. If the owner is suddenly able to bring their mortgage current, work out a forbearance plan with the lender, or negotiate a short sale, you will walk away empty handed. Until you receive the title with your name on it, which usually takes about 10 days after the auction ends, you have no guarantees.
These are loans that are high interest and short term, and generally unsuitable for auction bidders who plan to live in the home. These loans make sense for property flippers, whose business it is to fix up and sell their auction buys as quickly as possible, paying off the loan, and pocketing their profits.
In a delayed financing loan, you pay for your home upfront, as in the case of an auction purchase, and then immediately refinance the home to take the equity back out, presumably to buy more houses. It could also work if you borrowed money from friends or family to make the initial purchase of an auction property and need to repay those loans.
Essentially, you will have to meet the appraisal and home inspection requirements, so a lot will depend on the condition of that home. It might be impossible to get that financing if the home turns out to be in worse shape than you imagined.
Figure out what you must pay for an auction property to make it worth your while, either as a homeowner or an investor. It can be difficult to stick to, especially in the case of a bidding war, when emotions run high. But if you know exactly when to walk away, you will avoid overpaying for an auction property.
All risks are on the buyer in the auction situation, so there is no one to look to for financial assistance should the problems in a home, or in its legal status, be greater than you thought they might be. Even the best-kept home can harbor serious problems within its walls.
If a homeowner has defaulted on a second lien, the first lien for the primary mortgage is probably not far behind. Your purchase will always be subordinate to the first lien, which could foreclose and wipe out all subordinate liens.
With the cost of housing skyrocketing, it can be tempting to many people to consider foreclosure purchases and auctions as the ideal way to get into a great home for a great price. This can be true, but there are some facts that you should know about this process before you embark on it.
Foreclosure auctions happen when a homeowner ceases to make payments on their home or property and the lender who holds their mortgage takes possession of the property to sell it. This means that the home will usually be sold for less than market value and the process will be done via an auction to be sure that the home sells promptly. These factors make it a much different purchasing process than if you were to buy a home that is for sale by the owner or through a real estate agent.
There are various sites online that will show you just foreclosure homes that are set to be put up for auction. This is often the best place to look for foreclosures in your local area and sites that are regularly updated will be your best bet. You still should know that not all of these sites are very current and you might inquire about many homes that have already been auctioned before you are able to finally find one to bid on.
You can also track down foreclosures through a third-party foreclosure agent who is also known as a trustee. Some people will also find homes that are being foreclosed on in their local area by simply driving by. You might be able to find out information about the foreclosure from a sign that has been placed in the yard of these homes, although this is not always how foreclosure is handled.
This is usually after three payments, but it can vary depending on the lender. The next stage of the process will make it formally recorded that the homeowner is in default. At this stage, you will still not be able to make an offer on the home, and you might not even know that this process is going on. 041b061a72